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RO

RETAIL OPPORTUNITY INVESTMENTS CORP (ROIC)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 2024 delivered steady operations but softer earnings: total revenues rose to $83.3M (+1.6% YoY), GAAP diluted EPS fell to $0.06 (vs $0.08 YoY), and FFO/share declined to $0.25 (vs $0.27 YoY) .
  • Leasing momentum remained strong: portfolio lease rate increased to 97.0% (from 96.4% in Q1), with 12.4% cash rent growth on same-space new leases and 5.8% on renewals; same-center cash NOI grew 1.7% YoY .
  • Guidance was refined: 2024 FFO/share range narrowed to $1.04–$1.07 (lower end raised, upper end reduced) and GAAP EPS guided to $0.25–$0.28, reflecting muted acquisition activity and expected back-half downtime from anchor re-leasing .
  • Balance sheet positioning: a $26M mortgage was retired; 98.7% of GLA is unencumbered; net principal debt/annualized EBITDA at 6.6x; management targeting a long-term public bond to refinance $250M notes due Dec-2024 and potentially the $200M term loan concurrently .
  • Market narrative: management highlighted robust West Coast demand (fitness, wellness, children enrichment, digital kitchens), while rate uncertainty keeps sellers sidelined—reducing external growth near term and shifting focus to mark-to-market opportunities on anchors over 2025–2026 .

What Went Well and What Went Wrong

What Went Well

  • Strong leasing and rent growth: 131 leases, 392.7K sf; same-space cash base rents up 12.4% on new leases and 5.8% on renewals; lease rate rose to 97.0% .
  • Management tone and pipeline: “leasing space at a near record pace… already leased over 776,000 square feet YTD” and aiming for “another strong, potentially record-setting year” in leasing .
  • Portfolio enhancement: acquired dual-grocery-anchored Bressi Ranch Village Center for $70.1M (98.4% leased); subsequently sold a property for ~$56.6M at a low-6% cap, recycling capital into higher-quality assets .

What Went Wrong

  • Earnings compression: GAAP diluted EPS fell to $0.06 (vs $0.08 YoY) and FFO/share to $0.25 (vs $0.27 YoY), impacted by higher interest expense and timing of anchor re-leasing commencements .
  • External growth stall: high financing costs and seller pricing expectations muted acquisitions; guidance high end lowered as the company now assumes no additional acquisitions in H2 2024 .
  • Tenant headlines risk: ongoing Rite Aid/Big Lots watchlists; while exposure is limited and backfills are lined up, investor concern persists; bad debt midpoint nudged down, but bankruptcy/closure headlines require monitoring .

Financial Results

MetricQ2 2023Q1 2024Q2 2024
Total Revenues ($USD Millions)$82.0 $85.3 $83.3
GAAP Diluted EPS ($)$0.08 $0.09 $0.06
FFO per Diluted Share ($)$0.27 $0.28 $0.25
Same-Center Cash NOI ($USD Millions)$54.681 $55.593 $55.625
Same-Center Cash NOI Growth (%)+1.7% YoY +5.7% YoY +1.7% YoY
Portfolio Lease Rate (%)98.3% (same-center) 96.4% (portfolio) 97.0% (portfolio)

Segment/Reporting Detail (NOI and Cash NOI):

MetricQ2 2023Q2 2024
GAAP Operating Income ($USD Millions)$28.151 $27.842
Total Company Cash NOI ($USD Millions)$55.383 $57.533
Same-Center Cash NOI ($USD Millions)$54.681 $55.625
Non Same-Center Cash NOI ($USD Millions)$(0.702) $(1.908)

Balance Sheet and Debt KPIs:

MetricQ2 2023Q1 2024Q2 2024
Total Principal Debt ($USD Millions)$1,373.389 $1,377.868 $1,447.694
Net Principal Debt / Annualized EBITDA (x)6.5x 6.4x 6.6x
Unencumbered GLA (%)96.6% 96.6% 98.7%

Leasing KPIs:

MetricQ1 2024Q2 2024
Leases Executed (Count)87 131
Leases Executed (GLA, sf)383,293 392,746
New Leases (GLA, sf)43,968 116,651
Renewals (GLA, sf)339,325 276,095
Same-Space Cash Rent Growth – New Leases (%)12.2% 12.4%
Same-Space Cash Rent Growth – Renewals (%)6.7% 5.8%
ABR of New Leases Signed/Not Yet Commenced ($USD Millions)$6.672 $7.292

Dividends:

MetricQ1 2024Q2 2024
Dividend per Common Share ($)$0.15 paid Apr-5 $0.15 paid Jul-10; $0.15 declared for Oct-4

Note: S&P Global consensus estimates for ROIC were unavailable via our tool integration for Q2 2024; therefore, no estimate comparisons are shown.

Guidance Changes

MetricPeriodPrevious Guidance (2/14/24)Current Guidance (7/23/24)Change
GAAP net income per diluted shareFY 2024$0.24–$0.34 $0.25–$0.28 Narrowed; lower end raised; upper end lowered
FFO per diluted shareFY 2024$1.03–$1.09 $1.04–$1.07 Narrowed; lower end raised; upper end lowered
General & administrative expenses ($M)FY 2024$23.0 / $22.5 $23.0 / $22.5 Maintained
Interest & other finance expenses ($M)FY 2024$80.0 / $78.0 $80.0 / $78.0 Maintained
Straight-line rent ($M)FY 2024$0.0 / $1.5 $0.6 / $1.5 Low end raised
Above/below-market rent amortization ($M)FY 2024$14.0 / $14.0 $14.3 / $14.3 Raised (both ends)
Bad debt ($M)FY 2024$5.0 / $3.0 $4.0 / $3.0 Low end lowered
Acquisitions (net of dispositions, $M)FY 2024$100 / $300 $13.5 / $13.5 Lowered (both ends)
Equity issued ($M)FY 2024$60 / $180 $0 / $0 Lowered to zero
Same-center NOI growth (%)FY 20241.0% / 2.0% 1.0% / 2.0% Maintained; management expects weaker H2 vs H1
Dividend per share ($)Quarterly cadence$0.15 (ongoing) $0.15 (Jul/Oct) Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2023 and Q1 2024)Current Period (Q2 2024)Trend
Acquisition market, ratesIssued $350M notes; reduced floating-rate debt; expected $100–$300M net acquisitions in 2024 but dependent on market; rates drove buyers to sidelines late Q1 Sellers remain sidelined; financing costs elevated; remove H2 acquisitions from guidance; high end lowered More cautious; external growth curtailed
Anchor re-leasing / mark-to-marketFour anchor spaces available; new tenants lined up; blended rent expected to more than double net of TI; commencements largely 2025 12% rent spreads on new leases; significant mark-to-market ahead; expect same-store growth to re-accelerate in 2025–2026 as commencements hit Positive; timing favors H2-2025 and 2026
Tenant health (Rite Aid, Big Lots)Limited Rite Aid impact; renewals negotiated; demand strong for backfills Big Lots Lacey likely closure; backfills ready; minimal risk; Rite Aid closures not impacting portfolio; one sublet to Dollar Tree Stable; proactive backfill strategy
Debt strategyAim to term out debt; fixed-rate mix increased; plan to access bond market opportunistically Target long-term public bond (pref. 10-year) for Dec-2024 notes; possibly refinance term loan simultaneously; swaps to roll off Extending maturities; manage cost of capital
Demand drivers / tenant mixNecessity retail and destination tenants expanding across West Coast Robust demand: fitness, wellness, children enrichment, digital kitchens; selective market expansion Sustained demand; diversified categories

Management Commentary

  • “Demand for space continues to propel our business… achieving a 12.4% increase in same-space new leases during the second quarter, representing our 50th consecutive quarter of achieving releasing rent growth.” — Stuart A. Tanz, CEO .
  • “We currently only have 1 mortgage… 94 of our 95 shopping centers are unencumbered… objective is to refinance the [Dec] bonds through long-term public bond offering, preferably a 10-year deal.” — Michael B. Haines, CFO .
  • “There’s no shortage of demand… destination tenants… fitness, self-care, wellness… digital kitchen concepts… strategically seeking to expand only in select West Coast markets.” — Richard K. Schoebel, COO .
  • “We are now assuming no additional acquisition activity… Accordingly, we have lowered the high end of our initial FFO guidance.” — Stuart A. Tanz, CEO .

Q&A Highlights

  • Same-store NOI trajectory: Management kept 1–2% FY guide; expects H2 to be “not as strong” as H1 due to comp dynamics and downtime from anchor re-leasing .
  • Guidance sensitivity to net investments: Removing acquisition activity pulled down the high end; each $100M net investment added ~$0.01 FFO/share under prior assumptions .
  • Tenant credit updates: Minimal exposure to recently troubled names; receivables consistent with historical averages; Big Lots Lacey backfill lined up, lease termination fee not in guidance .
  • Kohl’s backfill timing: LOI signed for 115K sf; rent commencement targeted late 2025; significant TI contemplated .
  • Debt refinancing: Expect unsecured pricing around ~6% based on market, with swaps rolling off; targeting refinancing of 2024 bonds and term loan to push maturities out .

Estimates Context

  • We attempted to retrieve S&P Global consensus for ROIC’s Q2 2024 EPS/FFO/revenue but the mapping was unavailable via our integration, so consensus comparisons are not shown. Values would normally be retrieved from S&P Global.*

Key Takeaways for Investors

  • Leasing strength and durable rent spreads underpin medium-term NOI growth; expect re-acceleration in 2025 as anchor commencements hit, with fuller run-rate in 2026 .
  • Near-term earnings constrained by higher interest expense and re-leasing downtime; H2 same-store likely softer than H1, but the guide still targets 1–2% for FY .
  • External growth muted given rates and seller expectations; capital recycling continues (sell low-growth, buy irreplaceable grocery-anchored assets), improving portfolio quality .
  • Balance sheet risk manageable: plan to term out Dec-2024 notes and possibly the term loan; monitor timing and pricing—successful execution reduces refinancing overhang .
  • Demand drivers remain robust in core West Coast markets (necessity + destination tenants); limited exposure to troubled banners and proactive backfills mitigate tenant risk .
  • Dividend maintained at $0.15/share; payout ratio reasonable vs FFO; watch for potential adjustments only if macro or refinancing costs materially change .
  • Trading setup: near-term prints may be uninspiring vs strong H1, but visible catalysts (anchor mark-to-market, refinancing clarity) could shift sentiment; use weakness to accumulate if bond/refi execution and leasing commencements track plan .
References: 
Press release and supplemental (Q2 2024): **[1407623_0001407623-24-000081_roic-63024xpressreleasexex.htm:0]** **[1407623_0001407623-24-000081_roic-63024xpressreleasexex.htm:1]** **[1407623_0001407623-24-000081_roic-63024xpressreleasexex.htm:2]** **[1407623_0001407623-24-000081_roic-63024xpressreleasexex.htm:4]** **[1407623_0001407623-24-000081_roic-63024xpressreleasexex.htm:5]** **[1407623_0001407623-24-000081_supplementaldisclosure2q.htm:5]** **[1407623_0001407623-24-000081_supplementaldisclosure2q.htm:6]** **[1407623_0001407623-24-000081_supplementaldisclosure2q.htm:9]** **[1407623_0001407623-24-000081_supplementaldisclosure2q.htm:13]**
Earnings call transcript (Q2 2024): **[1407623_ROIC_3394592_1]** **[1407623_ROIC_3394592_2]** **[1407623_ROIC_3394592_3]** **[1407623_ROIC_3394592_4]** **[1407623_ROIC_3394592_5]** **[1407623_ROIC_3394592_7]** **[1407623_ROIC_3394592_8]** **[1407623_ROIC_3394592_9]** **[1407623_ROIC_3394592_10]** **[1407623_ROIC_3394592_11]** **[1407623_ROIC_3394592_12]** **[1407623_ROIC_3394592_13]** **[1407623_ROIC_3394592_14]** **[1407623_ROIC_3394592_15]** **[1407623_ROIC_3394592_18]** **[1407623_ROIC_3394592_20]** **[1407623_ROIC_3394592_21]** **[1407623_ROIC_3394592_22]**
Prior quarter press release/supplemental (Q1 2024): **[1407623_0001407623-24-000069_roic-33124xpressreleasexex.htm:0]** **[1407623_0001407623-24-000069_roic-33124xpressreleasexex.htm:1]** **[1407623_0001407623-24-000069_roic-33124xpressreleasexex.htm:3]** **[1407623_0001407623-24-000069_roic-33124xpressreleasexex.htm:4]** **[1407623_0001407623-24-000069_supplementaldisclosure1q.htm:5]** **[1407623_0001407623-24-000069_supplementaldisclosure1q.htm:6]** **[1407623_0001407623-24-000069_supplementaldisclosure1q.htm:9]** **[1407623_0001407623-24-000069_supplementaldisclosure1q.htm:12]**
FY/Q4 2023 press release/supplemental: **[1407623_0001407623-24-000041_roic-123123xpressreleasexe.htm:0]** **[1407623_0001407623-24-000041_roic-123123xpressreleasexe.htm:1]** **[1407623_0001407623-24-000041_roic-123123xpressreleasexe.htm:2]** **[1407623_0001407623-24-000041_roic-123123xpressreleasexe.htm:4]** **[1407623_0001407623-24-000041_supplementaldisclosure4q.htm:6]**